Navigant Research Blog

As the energy storage industry continues to mature around the world, leading country markets are taking shape in very different ways. There are a number of factors that determine the dynamics of the energy storage industry in a given country, including the mix of technologies and applications that are most common. According to Navigant Research’s Country Forecasts for Grid-Tied Energy Storagereport, the level of development in a given country’s economy will have a significant impact on the local energy storage market. The report forecasts that the largest markets for grid-tied energy storage in the coming decade will be the United States, China, Germany, and India. These four countries represent both sides of the spectrum, spanning from highly advanced to developing economies. This is an important distinction, as countries with developing economies typically have highly regulated energy markets, while more advanced economies often bring about market deregulation.

Economic factors dictating energy storage dynamics in developing economies such as China and India include ongoing electrification projects as well as rapidly growing urban populations. These countries also tend to have much less reliable grids compared to more advanced economies, which leads to greater demand for microgrids and behind-the-meter energy storage systems that can protect customers from more frequent power outages. However, despite this, we see a more balanced mix of utility-scale and distributed energy storage in China and India. This is partially due to the drive for improved reliability on the part of grid operators in addition to the grid continuing to expand geographically to serve new customers. These countries are also seeing energy storage markets that have more top-down control by regulators. As a result, there is much less diversity in the types of storage technologies being deployed, with only four energy storage technologies in use in China and just three in India.

Advanced Economies

In contrast to China and India, the more advanced economies of the United States and Germany are seeing much more participation from third-party energy storage providers, including independent power producers. As a result of this dynamic and less central government control, there is a much greater diversity of technologies installed. Nineteen different energy storage technologies are in use in the United States and eight in Germany. Due to the deregulated energy markets, customers in these countries are more empowered to control their energy usage. As a result, Germany is expected to have the greatest percentage of distributed energy storage, with nearly 73% of new storage capacity over the next 10 years. A similar dynamic is at play in the United States, where up to 60% of new energy storage capacity will come from distributed systems in certain areas over the next decade.

While a number of factors will determine the mix of technologies and applications for energy storage in a given country, the level of economic development plays a major role. This dynamic highlights how important it is for vendors and project developers to understand the differences between individual countries and which factors affect the energy storage market. For example, the need for channel partners or close relationships with utilities may be much greater in developing economies where utilities are more likely to own storage themselves. Navigant Research’s recently published Energy Storage Tracker 1Q 2016 report offers a broad database of projects that provide valuable insights into the specifics of energy storage markets around the world.

California’s Self-Generation Incentive Program (SGIP) has significantly advanced the state’s distributed energy storage market and has also highlighted the remaining challenges facing the industry. The program provides incentives for customers to install qualifying technologies including: small wind, waste-to-energy, generator sets and microturbines, fuel cells, and energy storage systems. SGIP has made California’s burgeoning energy storage industry one of the most advanced in the world. Storage systems currently receive incentives of up to $1.46 per watt, the second highest rate in the program. As a result, 224 storage systems have been deployed through the program, representing just over 11 MW of capacity. Despite this success, the industry still faces many challenges that are evident when analyzing the program’s project data.

Program Backlog

While an impressive number of systems have been deployed through SGIP, many projects have been cancelled, and many others currently sit idly by with little chance of being developed. There are currently 301 systems in the SGIP pipeline that were initiated before the start of 2014. These systems account for $25.1 million of held-up incentives that could otherwise go to more active projects. Given the program’s annual statewide budget of $77.1 million, these languishing projects account for 32% of the available incentives.

One reason for this backlog is the relative ease with which customers can begin working with vendors and reserve incentives through the program. Several companies active in California have employed a strategy of taking as many reservations as possible from prospective customers, regardless of the odds of the companies following through with an installation. While this strategy may improve a company’s market share for pipeline alone, it is detrimental to the overall program goals because it works against the other companies that focus efforts on the appropriate and more reliable customers. A potential fix for the program could include stricter milestones and required reservation timelines. Currently, a proof-of-project milestone is due 90 days after the start of most projects, meaning many systems have been in the pipeline for well over a year since that milestone was passed.

Remaining Challenges

The program’s large pipeline and rate of cancelled storage projects highlight challenges for both the program and the overall storage industry. The average ratio of systems deployed to systems that are eventually cancelled is only around 18% for leading vendors in the program. This results in a significant amount of capital resources for emerging companies that are lost on identifying and working with customers that never install systems. Furthermore, this dynamic highlights challenges with systems integration and installation that are faced by the relatively new industry. Changes in interconnection and installation requirements in different parts of the state—often not discovered until well into the development process—can add substantial costs to a project and significantly alter the overall economics, resulting in cancellations.

The large number of cancelled and delayed projects undoubtedly illustrates that the distributed storage industry as a whole must mature to improve the efficiency of operations and lower costs. Improvements should come naturally to the rapidly growing industry as customers become more educated and as increasing sales volumes lead to more standardization and streamlined processes, perhaps similar to California’s recent experiences with solar PV.